Strategic Management

Course structure Introducing strategy I. The strategic position • The environment • Strategic capabilities • Strategic purpose • Culture and strategy II. Strategic choices • Business strategy • Corporate strategy and diversification • Internationalization strategy • Innovation and entrepreneurship • Mergers, acquisitions and alliances

Course structure (continued) III. Strategy in action • Evaluating strategies • Strategy development processes • Leadership and strategic change

Definitions of strategy (2) ‘..the long-term direction of an organization Exploring Strategy

III. Strategy in action •Evaluating strategies •Strategy development processes •Leadership and Course structure

Introducing strategy

I. The strategic position

•The environment

•Strategic capabilities •Strategic purpose •Culture and strategy

II. Strategic choices

•Business strategy •Corporate strategy and diversification

•Internationalization strategy •Innovation and entrepreneurship •Mergers, acquisitions and alliances

Johnson, W hitt ington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education L imited 2011

Course structure (continued) III. Strategy in action •Evaluating strategies •Strategy development processes

•Leadership and strategic changestrategic change

III. Strategy in action •Evaluating strategies •Strategy development processes •Leadership and strategic change

Course structure

Introducing strategy

I. The strategic position •The environment

•Strategic capabilities

•Strategic purpose

•Culture and strategy

II. Strategic choices •Business strategy

•Corporate strategy and diversification

•Internationalization strategy

•Innovation and entrepreneurship •Mergers, acquisitions and alliances

Course structure

Introducing strategy

I. The strategic position •The environment

•Strategic capabilities

•Strategic purpose

•Culture and strategy

II. Strategic choices

•Business strategy

•Corporate strategy and diversification

•Internationalization strategy

•Innovation and entrepreneurship

•Mergers, acquisitions and alliances

Course structure (continued) Course structure (continued)

Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011 Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Three horizons for strategy (1) • Horizon 1 : Extend and defend core business. • Horizon 2 : Build emerging businesses. • Horizon 3 : Create viable options.

Stakeholders Stakeholders are those individuals or groups that depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.

Levels of strategy (2) • Corporate-Level Strategy is concerned with the overall purpose and scope of an organisation and how to add value to business units. • Business-Level Strategy is concerned with the way a business seeks to compete successfully in its particular market. • Operational Level Strategy is concerned with how different parts of the organization deliver the strategy in terms of managing resources, processes and people. Strategy statements Strategy statements should have three main themes: • the fundamental goals that the organization seeks, which draw on the stated mission, vision and objectives • the scope or domain of the organisation’s activities • and the particular advantages or capabilities it has to deliver all these. Working with strategy (1) All managers are concerned with strategy: • Top managers frequently formulate and control strategy but may also involve others in the process. • Middle and lower level managers have to meet strategic objectives and deal with constraints. • All managers have to communicate strategy to their teams. • All managers can contribute to the formation of strategy through ideas and feedback. Working with strategy (2) Organisations may also use strategy specialists:

• Many large organisations have in-house strategic planning or analyst roles. • Strategy consultants can be engaged from one of many general management consulting firms (e.g. Accenture, IBM Consulting, PwC). • There are a growing number of specialist strategy consulting firms (e.g. McKinsey &Co, The Boston Consulting Group). Strategy’s three branches (1) • CONTEXT – internal and external. • CONTENT – strategic options. • PROCESS – formation and implementation.

Strategic position (1) The strategic position is concerned with the impact on strategy of the external environment, the organisation’s strategic capability (resources and competences), the organisation’s goals and the organisation’s culture. Strategic position (3) Fundamental questions for Strategic Position: • What are the environmental opportunities and threats?

• What are the organisation’s strengths and weaknesses? • What is the basic purpose of the organisation? • How does culture shape strategy?

Strategic choices (1) Strategic choices involve the options for strategy in terms of both the directions in which strategy might move and the methods by which strategy might be pursued. Strategic choices (3) Fundamental questions for Strategic Choice: • How should business units compete? • Which businesses to include in the portfolio? • Where should the organisation compete internationally? • Is the organisation innovating appropriately? • Should the organisation buy other companies, form alliances or go it alone? Strategy in action (1) Strategy in action is about how strategies are formed and how they are implemented. The emphasis is on the practicalities of managing. Exploring strategy in different contexts The Exploring Strategy Model can be applied in many contexts. In each context the balance of strategic issues differs: • Small Businesses (e.g. Purpose and Growth issues) • Multinational Corporations (e.g. Geographical Scope and Structure/Control issues)

• Public Sector Organisations (e.g. Service/Quality and Managing Change issues) • Not For Profit Organisations (e.g. Purpose and Funding issues) Chapter summary (1) • Strategy is the long-term direction of an organisation. A ‘strategy statement’ should cover the goals of an organisation, the scope of the organisation’s activities and the advantages or capabilities the organisation brings to these goals and activities. • Corporate-level strategy is concerned with an organisation’s overall scope; business-level strategy is concerned with how to compete; and operational strategy is concerned with how resources, processes and people deliver corporate- and business-level strategy. • Strategy work is done by managers throughout an organisation, as well as specialist strategic planners and strategy consultants. Research on strategy context, content and process shows how the analytical perspectives of economics, sociology and psychology can all provide practical insights for approaching strategy issues • The Exploring Strategy Model has three major elements: understanding the strategic position, making strategic choices for the future and managing strategy-in-action. • Strategic issues are best seen from a variety of perspectives, as exemplified by the four strategy lenses of design, experience, variety and discourse

Course 2

The PESTEL framework (1) The PESTEL framework categorises environmental influences into six main types: political, economic, social, technological, environmental legal Thus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies. The PESTEL framework (2) • Political Factors: For example, Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU). • Economic Factors: For example, business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends. • Socio-cultural Factors: For example, population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion. • Technological Factors: For example, new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D. • Environmental (‘Green’) Factors: For example, environmental protection regulations, energy consumption, global warming, waste disposal and re-cycling. • Legal Factors: For example, competition laws, health and safety laws, employment laws, licensing laws, IPR laws

Key drivers of change Key drivers for change:

• The environmental factors likely to have a high impact on the success or failure of strategy. • For example, the birth rate is a key driver for those planning nursery education provision in the public sector. • Typically key drivers vary by industry or sector

Using the PESTEL framework • Apply selectively –identify specific factors which impact on the industry, market and organisation in question. • Identify factors which are important currently but also consider which will become more important in the next few years. • Use data to support the points and analyse trends using up to date information • Identify opportunities and threats – the main point f the exercise!

Scenarios Scenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty. • Build on PESTEL analysis . • Do not offer a single forecast of how the environment will change. • An organisation should develop a few alternative scenarios (2–4) to analyse future strategic options.

Carrying out scenario analysis (1) • Identify the most relevant scope of the study – the relevant product/market and time span. • Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes.

• For each key driver select opposing outcomes where each leads to very different consequences. • Develop scenario ‘stories’ - That is, coherent and plausible descriptions of the environment that result from opposing outcomes • Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios. • Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.

Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry. A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)

Porter’s five forces framework Porter’s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: • the threat of entry, • the threat of substitutes, • the bargaining power of buyers, • the bargaining power of suppliers and • the extent of rivalry between competitors. The five forces constitute an industry’s ‘structure’.

The five forces framework (2) The Threat of Entry & Barriers to Entry • The threat of entry is low when the barriers to entry are high and vice versa. • The main barriers to entry are: Economies of scale/high fixed costs Experience and learning Access to supply and distribution channels Differentiation and market penetration costs Government restrictions (e.g. licensing) • Entrants must also consider the expected retaliation from organisations already in the market Threat of Substitutes Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process. Customers will switch to alternatives (and thus the threat increases) if: • The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts) • The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre) The bargaining power of buyers Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits . Buyer power is likely to be high when: Buyers are concentrated Buyers have low switching costs

Buyers can supply their own inputs (backward vertical integration)

The bargaining power of suppliers Suppliers are those who supply what organizations need to produce the product or service. Powerful suppliers can eat into an organisation’s profits. Supplier power is likely to be high when: The suppliers are concentrated (few of them). Suppliers provide a specialist or rare input. Switching costs are high (it is disruptive or expensive to change suppliers). Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents). Rivalry between competitors Competitive rivals are organisations with similar products and services aimed at the same customer group and are direct competitors in the same industry/market (they are distinct from substitutes). The degree of rivalry is increased when : Competitors are of roughly equal size Competitors are aggressive in seeking leadership The market is mature or declining There are high fixed costs The exit barriers are high There is a low level of differentiation

Implications of five forces analysis • Identifies the attractiveness of industries – which industries/markets to enter or leave.

• Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated. • The forces may have a different impact on different organisations e.g. large firms can deal with barriers to entry more easily than small firms. Issues in five forces analysis • Apply at the most appropriate level – not necessarily the whole industry (e.g. the European low cost airline industry rather than airlines globally). • Note the convergence of industries – particularly in the high tech sectors (e.g. digital industries - mobile phones/cameras/mp3 players). • Note the importance of complementary products and services (e.g. Microsoft Windows and McAfee computer security systems are complements). This can almost be considered as a sixth force Types of industry (1) • Monopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market. For example, BT in the UK fixed line telephone market. • Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers. • Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are ‘perfect’ but may have features of highly competitive markets, for example, mini-cabs in London.

Hypercompetitive industries - where the frequency, boldness

and aggression of competitor interactions accelerate to create a

condition of constant disequilibrium and change.

• Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones). • Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and Strategic Groups Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases. • These characteristics are different from those in other strategic groups in the same industry or sector. • There are many different characteristics that distinguish between strategic groups. • Strategic groups can be mapped on to two dimensional charts – maps. These can be useful tools of analysis. Uses of strategic group analysis • Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry (E.g. Tesco will focus on Sainsburys and Asda; in RO: Carrefour vs. Auchan / Cora) • Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry. • Analysis of ‘mobility barriers’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group. Market segments

A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market. • Where these customer groups are relatively small, such market segments are called ‘niches’. • Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy. • Customer needs vary for a variety of reasons –these factors can be used to identify distinct market segments. • Not all segments are attractive or viable market opportunities – evaluation is essential. Who are the strategic customers? A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased. Examples: • For a food manufacturer it is the multiple retailers (e.g. Carrefour) that are the strategic customers, not the ultimate consumer. • For a pharmaceutical manufacturer it is the health authorities and hospitals, not the final patient. Critical success factors (CSFs) • Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost. • Critical success factors are likely to be an important source of competitive advantage if an organization has them (or a disadvantage if an organisation lacks them). • Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be

punctuality and value for money whereas in full service airlines it is all about quality of service). Blue ocean thinking • ‘Blue oceans’ are new market spaces where competition is minimised. • ‘Red Oceans’ are where industries are already well defined and rivalry is intense. • Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served. • A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces. Course 3 Resource-based strategy The resource-based view (RBV) of strategy asserts that the competitive advantage and superior performance of an organisation are explained by the distinctiveness of its capabilities. Resources and competences • Resources are the assets that organizations have or can call upon (e.g. from partners or suppliers), that is, ‘what we have’ . • Competences are the ways those assets are used or deployed effectively, that is, what we do well’. Redundant capabilities • Capabilities, however effective in the past, can become less relevant as industries evolve and change. • Such ‘capabilities’ can become ‘rigidities’ that inhibit change and become a weakness.

Dynamic capabilities Dynamic capability is the ability of an organisation to renew and recreate its strategic capabilities to meet the needs of changing environments.

Threshold and distinctive capabilities (1) • Threshold capabilities are those needed for an organisation to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market – ‘qualifiers’. • Distinctive capabilities are those that critically underpin competitive advantage and that others cannot imitate or obtain – ‘winners’.

Core competences Core competences1 are the linked set of skills, activities and resources that, together: • deliver customer value • differentiate a business from its competitors • potentially, can be extended and developed as markets change or new opportunities arise.

Strategic capabilities and competitive advantage The four key criteria by which capabilities can be assessed in terms of providing a basis for achieving sustainable competitive advantage are: • value, • rarity, • inimitability and • non-substitutability

VRIN1

V – Value of strategic capabilities Strategic capabilities are of value when they: • take advantage of opportunities and neutralise threats • provide value to customers • provide potential competitive advantage • at a cost that allows an organisation to realize acceptable levels of return R – Rarity • Rare capabilities are those possessed uniquely by one organisation or by a few others only. (E.g. a company may have patented products, have supremely talented people or a powerful brand.) • Rarity could be temporary. (Eg: Patents expire, key individuals can leave or brands can be de-valued by adverse publicity.) I – Inimitability Inimitable capabilities are those that competitors find difficult to imitate or obtain. • Competitive advantage can be built on unique resources (a key individual or IT system) but these may not be sustainable (key people leave or others acquire the same systems). • Sustainable advantage is more often found in competences (the way resources are managed, developed and deployed) and the way competences are linked together and integrated. N - Non-substitutability Competitive advantage may not be sustainable if there is a threat of substitution. • Product or service substitution from a different industry/market. For example, postal services partly substituted by e-mail. • Competence substitution. For example, a skill

substituted by expert systems or IT solutions

Organisational knowledge is the collective intelligence, specific to an organisation, accumulated through both formal systems and the shared experience of people in that organisation. Some of this knowledge is ‘Tacit’ knowledge that is, more personal, context-specific and hard to formalise and communicate – so it is difficult to imitate, for example, the knowledge and relationships in a top R&D team. Benchmarking is a means of understanding how an organisation compares with others – typically competitors. Two approaches to benchmarking: • Industry/sector benchmarking – comparing performance against other organisations in the same industry/sector against a set of performance indicators. • Best-in-class benchmarking - comparing an organisation’s performance or capabilities against ‘best-in-class’ performance – wherever that is found even in a very different industry. The value chain • The value chain describes the categories of activities within an organisation which, together, create a product or service. • The value chain invites the strategist to think of an organisation in terms of sets of activities – sources of competitive advantage can be analysed in any or all of these activities. Uses of the value chain • A generic description of activities – understanding the discrete activities and how they contribute to consumer benefit and how they add to cost.

• Identifying activities where the organization has particular strengths or weaknesses • Analysing the competitive position of the organisation using the VRIN criteria – thus identifying sources of sustainable advantage. • Looking for ways to enhance value or decrease cost in value activities (e.g. outsourcing) The value network • The value network comprises the set of interorganisational links and relationships that are necessary to create a product or service. • Competitive advantage can be derived from linkages within the value network. Uses of the value network • Understanding cost/price structures across the value network – analysing the best area of focus and the best business model. • Identifying ‘profit pools’ within the value network and seek to exploit these. • The ‘make or buy’ decision: deciding which activities to do ‘in-house’ and which to outsource. • Partnering and relationships – deciding who to work with and the nature of these relationships. Mapping activity systems (1) • Identify ‘higher order strategic themes’ that is, how the organisation meets the critical success factors in the market. • Identify the clusters of activities that underpin these themes and how they fit together. • Map this in terms of how activity systems are interrelated. Using activity system maps • A means of identifying strategic capabilities in terms of linkages of activities

• Internal and external links are identified (e.g. in terms of the needs of customers). • Therefore helps identify bases of competitive advantage. • And sustainable advantage, for example, in terms of bases of inimitability. SWOT analysis SWOT summarises the strengths, weaknesses, opportunities and threats likely to impact on strategy development. INTERNAL STRENGTHS WEAKNESSES ANAYSIS EXTERNAL OPPORTUNITIES THREATS ANALYSIS

Uses of SWOT analysis • Key environmental impacts are identified using the analytical tools explained in Chapter 2. • Major strengths and weaknesses are identified using the analytic tools explained in Chapter 3. • Scoring (e.g. + 5 to - 5) can be used to assess the interrelationship between environmental impacts and the strengths and weaknesses. • SWOT can be used to examine strengths, weaknesses, opportunities and threats in relation to competitors. • SWOT can be used to generate strategic options– using a TOWS matrix. Dangers in a SWOT analysis • Long lists with no attempt at prioritisation. • Over generalisation – sweeping statements often based on biased and unsupported opinions.

• SWOT is used as a substitute for analysis – it should result from detailed analysis using the frameworks in Chapters 2 and 3. • SWOT is not used to guide strategy – it is seen as an end in itself. Developing strategic capabilities (1) Internal capability development: • Leveraging capabilities – identifying capabilities in one part of the organisation and transferring them to other parts (sharing best practice). • Stretching capabilities - building new products or services out of existing capabilities. External capability development – adding capabilities through mergers, acquisitions or alliances. • Ceasing activities – non-core activities can be stopped, outsourced or reduced in cost. • Monitor outputs and benefits – to understand sources of consumer benefit and enhance anything that contributes to this. • Managing the capabilities of people – training, development and organisation learning. Course 4 A mission statement aims to provide employees and stakeholders with clarity about the overriding purpose of the organisation • A mission statement should answer the questions: ‘What business are we in?’ ‘How do we make a difference?’ ‘Why do we do this?’

A vision statement is concerned with the desired future state of the organisation; an aspiration that will enthuse, gain commitment and stretch performance. • A vision statement should answer the question : ‘What do we want to achieve?’ A statement of corporate values should communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate. • Such core values should remain intact whatever the circumstances and constraints faced by the organisation. Objectives are statements of specific outcomes that are to be achieved. • Objectives are frequently expressed in: financial terms (e.g. desired profit levels) market terms (e.g. desired market share) and increasingly social terms (e.g. corporate social responsibility targets) Issues in setting objectives • Do objectives need to be specific and quantified targets? • The need to identify core objectives that are crucial for survival. • The need for a hierarchy of objectives that cascade down the organisation and define specific objectives at each level. Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation. The growing importance of governance • The separation of ownership and management control – defining different roles in governance. • Corporate failures and scandals (e.g. Enron) – focussing attention on governance issues.

• Increased accountability to wider stakeholder interests and the need for corporate social responsibility (e.g. green issues). The principal-agent model • Governance can be seen in terms of the principal agent model • Principals pay agents to act on their behalf (e.g. beneficiaries/trustees pay investment managers to manage funds, Boards of Directors pay executives to run a company). • Agents may act in their own self interest. Issues in governance (1) • The key challenge is to align the interests of agents with those of the principals. • Misalignment of incentives and control – e.g. beneficiaries may require long term growth but executives may be seeking short term profit. • Responsibility to whom – should executives pursue solely shareholder aims or serve a wider constituency of stakeholders? Who are the shareholders – should boards respond to the demands of institutional investment managers or the needs of the ultimate beneficiaries? • The role of institutional investors – should they actively intervene in strategy? • Establishing the specific role of the board – in particular the role of non-executive directors. • Scrutiny and control – statutory requirements and voluntary codes to regulate boards. The role of boards • Operate ‘independently’ of the management – the role of non-executives is crucial. • Be competent to scrutinise the activities of managers.

• Have time to do their job properly. • Behave appropriately given expectations for trust, role fluidity, collective responsibility, and performance. Corporate social responsibility (CSR) is the commitment by organisations to ‘behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large’.1 The ethics of individuals and managers Ethical issues have to be faced at the individual level : • The responsibility of an individual who believes that the strategy of the organisation is unethical – resign, ignore it or take action. • ‘Whistle-blowing’ - divulging information to the authorities or media about an organization if wrong doing is suspected. Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities. Stakeholder mapping issues • Determining purpose and strategy – whose expectations need to be prioritised? • Do the actual levels of interest and power reflect the corporate governance framework? • Who are the key blockers and facilitators of strategy? • Is it desirable to try to reposition certain stakeholders? • Can the level of interest or power of key stakeholders be maintained? • Will stakeholder positions shift according to the issue/strategy being considered.

Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action.

Course 5

A strategic business unit (SBU) supplies goods or services for a distinct domain of activity. • A small business has just one SBU. • A large diversified corporation is made up of multiple businesses (SBUs). • SBUs can be called ‘divisions’ or ‘profit centres’ • SBUs can be identified by: – Market based criteria (similar customers, channels and competitors). – Capability based criteria (similar strategic capabilities). The purpose of SBUs • To decentralise initiative to smaller units within the corporation so SBUs can pursue their own distinct strategy. • To allow large corporations to vary their business strategies according to the different needs of external markets. • To encourage accountability – each SBU can be held responsible for its own costs, revenues and profits. Generic strategies • Porter introduced the term ‘Generic Strategy’ to mean basic types of competitive strategy that hold across many kinds of business situations. • Competitive strategy is concerned with how a strategic business unit achieves competitive advantage in its domain of activity.

• Competitive advantage is about how an SBU creates value for its users both greater than the costs of supplying them and superior to that of rival SBUs.

3Generic Strategies:

1.Cost-leadership strategy involves becoming the lowest-cost organisation in a domain of activity. Four key cost drivers that can help deliver cost leadership: • Lower input costs. • Economies of scale. • Experience. • Product process and design.

2.Differentiation involves uniqueness along some dimension that is sufficiently valued by customers to allow a price premium. Two key issues: • The strategic customer on whose needs the differentiation is based. • Key competitors – who are the rivals and who may become a rival. 3.A focus strategy targets a narrow segment of domain of an activity and tailors its products or services to the needs of that specific segment to the exclusion of others. Two types of focus strategy: • cost-focus strategy (e.g. Ryanair). • differentiation focus strategy (e.g. Ferrari).

Successful focus strategies depend on at least one of three key factors: • Distinct segment needs. • Distinct segment value chains.

• Viable segment economics.

‘Stuck in the middle’? Porter’s argues: • It is best to choose which generic strategy to adopt and then stick rigorously to it. • Failure to do this leads to a danger of being ‘stuck in the middle’ i.e. doing no strategy well. • The argument for pure generic strategies is controversial. Even Porter acknowledges that the strategies can be combined (e.g. if being unique costs nothing). Combining generic strategies • A company can create separate strategic business units each pursuing different generic strategies and with different cost structures. • Technological or managerial innovations where both cost efficiency and quality are improved. • Competitive failures – if rivals are similarly ‘stuck in the middle’ or if there is no significant competition then ‘middle’ strategies may be OK.

Strategy clock - differentiation • Strategies in this zone seeks to provide products that offer benefits that differ from those offered by competitors. • A range of alternative strategies from:

differentiation without price premium (12 o’clock) – used to

increase market share.

differentiation with price premium (1 o’clock) – used to

increase profit margins.

focused differentiation (2 o’clock) – used for customers that

demand top quality and will pay a big premium. Strategy clock – low price Low price combined with:

low perceived product benefits focusing on price sensitive

market segments – a ‘no frills’ strategy typified by low cost airlines like Ryanair.

lower price than competitors while offering similar product

benefits – aimed at increasing market share typified by Carrefour in retailing.

Strategy clock - hybrid • Seeks to simultaneously achieve differentiation and low price relative to competitors. • Hybrid strategies can be used:

to enter markets and build position quickly.

as an aggressive attempt to win market share.

to build volume sales and gain from mass production.

Strategy clock – non-competitive • Increased prices without increasing service/product benefits. • In competitive markets such strategies will be doomed to failure. • Only feasible where there is strategic ‘lock-in’ or a near monopoly position.

Strategic lock-in is where users become dependent on a supplier and are unable to use another supplier without substantial switching costs. • Lock-in can be achieved in two main ways:

Controlling complementary products or services. E.g. Cheap

razors that only work with one type of blade.

Creating a proprietary industry standard. E.g. Microsoft with

its Windows operating system. Hypercompetition describes markets with continuous disequilibrium and change e.g. pop music or consumer electronics. • Successful hypercompetition demands speed and initiative rather than defensiveness. Hypercompetition describes markets with continuous disequilibrium and change e.g. pop music or consumer electronics. • Successful hypercompetition demands speed and initiative rather than defensiveness. Game theory encourages an organisation to consider competitors’ likely moves and the implications of these moves for its own strategy.

Game theory encourages managers to consider how a ‘game’ can be transformed from ‘lose–lose’ competition to ‘win–win’cooperation. • Four principles:

Ensure repetition.

Signalling.

Deterrence.

Commitment.

In hypercompetitive conditions sustainable competitive advantage is difficult to achieve. Competitors need to be able to cannibalise, make small moves, be unpredictable and mislead their rivals.

• Cooperative strategies may offer alternatives to competitive strategies or may run in parallel. • Game theory encourages managers to get in the mind of competitors and think forwards and reason backwards.

Course 6

Market penetration refers to a strategy of increasing share of current markets with the current product range. This strategy:

builds on established strategic capabilities;

means the organisation’s scope is unchanged;

increased power (leads to greater market share and with

buyers and suppliers);

economies of scale (and provides greater and experience

curve benefits). Constraints of market penetration Retaliation from competitors

Legal constraints Economic Constraints (recession or funding crisis) Consolidation refers to a strategy by which an organisation focuses defensively on their current markets with current products. • Retrenchment refers to a strategy of withdrawal from marginal activities in order to concentrate on the most valuable segments and products within their existing business. Product development refers to a strategy by which an organisation delivers modified or new products to existing markets. • This strategy :

involves varying degrees of related diversification (in terms of

products);

can be expensive and highly risky

may require new strategic capabilities

typically involves project management risks.

Market development refers to a strategy by which an organisation offers existing products to new markets This strategy involves varying degrees of related diversification (in terms of markets) ; it…

may also entail some product development (e.g. new

styling or packaging);

can take the form of attracting new users (e.g. extending

the use of aluminium to the automobile industry);

can take the form of new geographies (e.g. extending the

market covered to new areas – international markets being the most important);

must meet the critical success factors of the new market

if it is to succeed;

may require new strategic capabilities especially in marketing.

Conglomerate (or unrelated) diversification takes the organization beyond both its existing markets and its existing products and radically increases the organisation’s scope. Drivers for diversification • Exploiting economies of scope – efficiency gains through applying the organisation’s existing resources or competences to new markets or services. • Stretching corporate management competences (‘dominant logics’). • Exploiting superior internal processes. • Increasing market power.

Synergy refers to the benefits gained where activities or assets complement each other so that their combined effect is greater than the sum of the parts. N.B. Synergy is often referred to as the ‘2 + 2 = 5’ effect.

Value-destroying diversification drivers Some drivers for diversification which may involve value destruction (negative synergies):

Responding to market decline,

Spreading risk and

N.B. Despite these being common justifications for diversifying, finance theory suggests these are misguided.

Managerial ambition.

Vertical integration describes entering activities where the organisation is its own supplier or customer. • Backward integration refers to development into activities concerned with the inputs into the company’s current business. • Forward integration refers to development into activities concerned with the outputs of a company’s current business. Outsourcing is the process by which activities previously carried out internally are subcontracted to external suppliers The decision to integrate or subcontract rests on the balance between two distinct factors: • Relative strategic capabilities: Does the subcontractor have the potential to do the work significantly better? • Risk of opportunism: Is the subcontractor likely to take advantage of the relationship over time? Value-adding activities Envisioning Coaching and facilitating Providing central services and resources Intervening

Value-destroying activities Adding management costs Adding bureaucratic complexity Obscuring financial performance

Corporate rationales (2)

• The portfolio manager operates as an active investor in a way that shareholders in the stock market are either too dispersed or too inexpert to be able to do. • The synergy manager is a corporate parent seeking to enhance value for business units by managing synergies across business units. • The parental developer seeks to employ its own central capabilities to add value to its businesses. Portfolio matrices Growth/Share (BCG) Matrix Directional Policy (GE-McKinsey) Matrix Parenting Matrix

The growth share (or BCG) matrix (2) • A star is a business unit which has a high market share in a growing market. • A question mark (or problem child) is a business unit in a growing market, but it does not have a high market share. • A cash cow is a business unit that has a high market share in a mature market. • A dog is a business unit that has a low market share in a static or declining market. Problems with the BCG matrix:

definitional vagueness,

capital market assumptions,

motivation problems,

self-fulfilling prophecies and

possible links to other business units.

The parenting matrix (2) 1. Heartland business units - the parent understands these well and can add value. The core of future strategy. 2. Ballast business units - the parent understands these well but can do little for them. They could be just as successful as independent companies. If not divested, they should be spared corporate bureaucracy. 3. Value-trap business units are dangerous. There are attractive opportunities to add value but the parent’s lack of feel will result in more harm than good. The parent needs new capabilities to move value-trap businesses into the heartland. It is easier to divest to another corporate parent which could add value. 4. Alien business units are misfits. They offer little opportunity to add value and the parent does not understand them. Exit is the best strategy.

Course 7

International strategy refers to a range of options for operating outside an organisation’s country of origin. • Global strategy involves high coordination of extensive activities dispersed geographically in many countries around the world. Porter’s Diamond – explains why some locations tend to produce firms with sustained competitive advantages in some industries more than others.

The four drivers in Porter’s Diamond stem from:

local factor conditions

local demand conditions

local related and supporting industries

local firm strategy structure and rivalry.

Global sourcing refers to purchasing services and components from the most appropriate suppliers around the world regardless of their location. The advantages include:

Cost advantages include labour costs, transportation and

communications costs, taxation and investment incentives.

Unique local capabilities.

National market characteristics and reputation

The global–local dilemma relates to the extent to which products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets. Four elements of the PESTEL framework are particularly important in comparing countries for entry:

Political. Political environments vary widely between countries

and can alter rapidly.

Economic. Key comparators are levels of Gross Domestic

Product and disposable income which indicate the potential size of the market.

Social. Factors like population characteristics and lifestyle as

well as cultural differences.

Legal. Countries vary widely in their legal regime.

The CAGE framework

Cultural distance Administrative and political distance Geographic distance Economic/ wealth Distance Assessing country markets Country markets can be assessed according to three criteria:

Market attractiveness to the new entrant

The likelihood and extent of defenders’ reaction

Defenders’ clout – the relative power of defenders to fight

back. The staged international expansion model proposes a sequential process whereby companies gradually increase their commitment to newly entered markets, as they build market knowledge and capabilities. This is challenged by two phenomena:

‘Born-global’ firms - new small firms that internationalise

rapidly (usually in new technologies)

Emerging-country multinationals - building unique

capabilities in the home market but exploiting them in international markets very quickly. Modes of entry Exporting Joint ventures and alliances Licensing Foreign direct investment

Exporting

Advantages • No need for operational facilities in host country • Economies of scale in the home country • Internet can facilitate exporting marketing opportunities Disadvantages • Lose any location advantages in the host country • Dependence on export intermediaries • Exposure to trade barriers • Transportation costs

Joint ventures and alliances Advantages • Shared investment risk • Complementary resources • Maybe required for market entry Disadvantages • Difficult to find good partner • Relationship management • Loss of competitive advantage • Difficult to integrate and coordinate Foreign direct investment Advantages • Full control • Integration and coordination possible • Rapid market entry through acquisitions • Greenfield investments are possible and may be subsidised Disadvantages • Substantial investment and commitment • Acquisitions may create integration/ coordination issues • Greenfield investments are time consuming and unpredictable

Licensing Advantages • Contractual source of income • Limited economic and financial exposure Disadvantages • Difficult to identify good partner • Loss of competitive advantage • Limited benefits from host nation Internationalisation and performance Inverted U-curve – complexity may erode the advantages of internationalisation Service sector disadvantages – internationalisation may only work well for manufacturing firms Internationalisation and product diversity Internationalisation potential in any particular market is determined by Yip’s four drivers: market, cost, government and competitors’ strategies. • Sources of advantage in international strategy can be drawn from both global sourcing through the international value network and national sources of advantage, as captured in Porter’s Diamond. • There are four main types of international strategy, varying according to extent of coordination and geographical configuration: simple export, complex export, multidomestic and global. Market selection for international entry or expansion should be based on attractiveness, multidimensional measures of distance and expectations of competitor retaliation. • Modes of entry into new markets include export,

licensing and franchising, joint ventures and overseas subsidiaries. • Internationalisation has an uncertain relationship to financial performance, with an inverted U-curve warning against over-internationalisation. • Subsidiaries in an international firm can be managed by portfolio methods just like businesses in a diversified firm. Course 8

Advantages of organic development • Knowledge and learning can be enhanced. • Spreading investment over time – easier to finance. • No availability constraints – no need to search for suitable partners or acquisition targets. • Strategic independence – less need to make compromises or accept strategic constraints. Corporate entrepreneurship refers to radical change in the organisation’s business, driven principally by the organisation’s own capabilities. For example, Amazon’s development of Kindle using its own in house development.

• A merger is the combination of two previously separate organisations, typically as more or less equal partners. • An acquisition involves one firm taking over the ownership (‘equity’) of another, hence the alternative term ‘takeover Motives for M&A:Financial,strategic, managerial Strategic motives can be categorised in three ways:

Extension – of scope in terms of geography, products or

markets.

Consolidation – increasing scale, efficiency and market

power.

Capabilities – enhancing technological knowhow (or other

competences). There are three main financial motives:

Financial efficiency – a company with a strong balance sheet

(cash rich) may acquire/merge with a company with a weak balance sheet (high debt).

Tax efficiency – reducing the combined tax burden.

Asset stripping or unbundling – selling off bits of the acquired

company to maximise asset values. M&A may serve managerial self-interest for two reasons:

Personal ambition – financial incentives tied to short-term

growth or share-price targets; boosting personal reputations; giving friends and colleagues greater responsibility or better jobs.

Bandwagon effects – managers may be branded as

conservative if they don’t follow a M&A trend; shareholder pressure to merge or acquire; the company may itself become a takeover target. Target choice in M&A Two main criteria apply: • Strategic fit – does the target firm strengthen or complement the acquiring firm’s strategy? (N.B. It is easy to over-estimate this potential synergy). • Organisational fit – is there a match between the management practices, cultural practices and staff characteristics of the target and the acquiring firm? Valuation in M&A Getting the offer price correct is essential:

Offer the target too little, and the bid will be unsuccessful.

Pay too much and the acquisition is unlikely to make a profit

net of the original acquisition price (‘the winner’s curse’).

Acquirers do not simply pay the current market value of the

target, but also pay a ‘premium for control’. Integration in M&A Approaches to integration: • Absorption – strong strategic interdependence and little need for organisational autonomy. Rapid adjustment of the acquired company’s strategies, culture and systems. • Preservation – little interdependence and a high need for autonomy. Old strategies, cultures and systems can be continued much as before. • Symbiosis – strong strategic interdependence, but a high

need for autonomy. Both the acquired firm and acquiring firm learn and adopt the best qualities from each other. • Holding – a residual category – with little to gain by integration. The acquisition will be ‘held’ temporarily before being sold on, so the acquired unit is left largely alone. • A strategic alliance is where two or more organisations share resources and activities to pursue a strategy. • Collective strategy is about how the whole network of alliances of which an organization is a member competes against rival networks of alliances. • Collaborative advantage is about managing alliances better than competitors. Types of strategic alliance There are two main kinds of ownership in strategic alliances: • Equity alliances involve the creation of a new entity that is owned separately by the partners involved. • Non-equity alliances are typically looser, without the commitment implied by ownership. Equity alliances • The most common form of equity alliance is the joint venture, where two organisations remain independent but set up a new organization jointly owned by the parents. • A consortium alliance involves several partners setting up a venture together. Non-equity alliances • Non-equity alliances are often based on contracts. • Three common forms of non-equity alliance:

Franchising.

Licensing.

Long-term subcontracting.

Motives for alliances • Scale alliances – lower costs, more bargaining power and sharing risks. • Access alliances – partners provide needed capabilities (e.g. distribution outlets or licenses to brands). • Complementary alliances – bringing together complementary strengths to offset the other partner’s weaknesses. • Collusive alliances – to increase market power. Usually kept secret to evade competition regulations. Strategic alliance processes Two themes are vital to success in alliances: • Co-evolution – the need for flexibility and change as the environment, competition and strategies of the partners evolve. • Trust – partners need to behave in a trustworthy fashion throughout the alliance. Comparing acquisitions, alliances and organic development Four key factors in choosing the method of strategy development : • Urgency – internal development may be too slow, alliances can accelerate the process but acquisitions are quickest. • Uncertainty – an alliance means risks are shared and thus a failure does not mean the full cost is lost.

• Type of capabilities – acquisitions work best with ‘hard’ resources (e.g. production units) rather than ‘soft’ resources (e.g. people). Culture clash is the big issue. • Modularity of capabilities – if the needed capabilities can be clearly separated from the rest of the organisation an alliance may be best. Course 9 Suitability is concerned with assessing which proposed strategies address the key opportunities & constraints an organisation faces, through an understanding of the strategic position of an organisation. It is concerned with the overall rationale of the strategy: • Does it exploit the opportunities in the environment and avoid the threats? • Does it capitalise on the organisation’s strengths and strategic capabilities and avoid or remedy the weaknesses?\ Suitability – screening techniques There are several useful techniques:

Ranking.

Using scenarios.

Screening for competitive advantage.

Decision trees.

Life cycle analysis.\

Competitive position within an industry can be:

• A dominant position which is rare in the private sector unless there is a quasi-monopoly position. In the public sector there can be a legalised monopoly status. • A strong position where organisations can follow strategies of their own choice without too much concern for competition. • A favourable position where no single competitor stands out, but leaders are better placed. • A tenable position can be maintained by specialisation or focus. • A weak position where competitors are too small to survive independently in the long run. Acceptability is concerned with whether the expected performance outcomes of a proposed strategy meet the expectations of stakeholders. There are three key aspects of acceptability - the ‘3 R’s’: • Risk. • Return. • Reactions (of stakeholders). • Risk concerns the extent to which the outcomes of a strategy can be predicted. • Risk can be assessed using:

Sensitivity analysis (‘what-if’ analysis).

Financial ratios – e.g. gearing and liquidity.

Break-even analysis.

• Returns are the financial benefits which stakeholders are expected to receive from a strategy. • Different approaches to assessing return:

Financial analysis.

Shareholder value analysis.

Cost–benefit analysis.

Real options.\

Advantages of real options There are four main benefits:

Bringing strategic and financial evaluation closer together.

Valuing emerging options.

Coping with uncertainty.

Offsetting conservatism.

Reaction of stakeholders • Stakeholder mapping and the power/interest matrix can be used to:

understand the political context of strategies.

understand the political agenda.

gauge the likely reaction of stakeholders to specific

strategies. • If key stakeholders find a strategy to be unacceptable then it is likely to fail Feasibility is concerned with whether a strategy could work in practice i.e. whether an organisation has the capabilities to deliver a strategy Two key questions: • Do the resources and competences currently exist to implement the strategy effectively?

• If not, can they be obtained? Financial feasibility Need to consider:

The funding required.

Cash flow analysis and forecasting.

Financial strategies needed for the different ‘phases’ of the

life cycle of a business. People and skills (1) Three questions arise: • Do people in the organisation currently have the competences to deliver a proposed strategy? • Are the systems to support those people fit for the strategy? • If not, can the competences be obtained or developed? Critical issues that need to be considered:

Work organisation – will this need to change?

Rewards – are the incentives appropriate?

Relationships – will people interact differently?

Training and development – are current systems

appropriate?

Staffing – are the levels and skills of the staff appropriate?

Integrating resources • The success of a strategy depends on the management of many resource areas, for example:

people,

finance,

physical resources,

information,

technology and

resources provided by suppliers and partners.

• It is essential to integrate resources – inside the organisation and in the wider value network. Evaluation criteria Four qualifications:

Conflicting conclusions and the need for management

judgement.

Consistency between the different elements of a strategy is

essential.

The implementation and development of strategies might

reveal unanticipated problems.

Strategy development in practice – it isn’t always a logical or

even rational process.

Course 10

An intended strategy is deliberately formulated or planned by managers. This may be the result of strategic leadership, strategic planning or the external imposition of strategy. Strategic leadership

Strategy may be the deliberate intention of a leader. This may manifest itself in different ways:

Strategic leadership as command.

Strategic leadership as vision.

Strategic leadership as decision-making.

Strategic leadership as symbolic

Strategic planning systems take the form of systematised, step-by-step, procedures to develop an organisation’s strategy. Stages of strategic planning Initial guidelines from corporate centre Business-level planning Corporate-level integration of business plans Financial and strategic targets agreed

The role of strategic planning Strategic planning may play several roles within an organisation: • Formulating strategy - a means by which managers can understand strategic issues. • Learning - a means of questioning and challenging the taken-for-granted. • Co-ordinating business-level strategies within an overall corporate strategy. • Communicating intended strategy and providing agreed objectives or strategic milestones. Benefits of planning There are additional psychological benefits:

can provide opportunities for involvement,

leading to a sense of ownership,

provides security to managers and

re-assures managers that the strategy is ‘logical’.

Dangers associated with planning • Confusing strategy with the plan. • Detachment from reality. • Paralysis by analysis. • Lack of ownership. • Dampening of innovation.

Externally imposed strategy Strategies may be imposed by powerful external stakeholders:

Government can determine strategy in public sector

organisations (e.g. police).

Government can shape strategy in regulated

industries (e.g. utilities).

Multinational companies may have elements of strategy

imposed (e.g. forming local alliances).

Business units may have their strategy imposed by head

office (e.g. part of a global strategy).

Venture capital firms may impose strategy on companies they

buy into. An emergent strategy comes about through a series of decisions - a pattern which becomes clear over time: ……not a ‘grand plan’, but a developing pattern in a stream of decisions.

Logical incrementalism is the development of strategy by experimentation and learning – from partial commitments rather than through formulations of total strategies. Logical incrementalism (2) Four characteristics of logical incrementalism:

Environmental uncertainty – constant scanning of the

environment and adapting to change.

General goals – avoiding too early commitment to specific

goals.

Experimentation – ‘side bet’ ventures to test

out new strategies.

Co-ordinating emergent strategies – drawing together an

emerging pattern of strategy from subsystems. Learning organisation – an organization that is capable of continual regeneration from the variety of knowledge, experience and skills within a culture that encourages questioning and challenge. The political view of strategy development is that strategies develop as the outcome of bargaining and negotiation among powerful interest groups (or stakeholders). Strategy continuity and prior decisions Continuity is likely to be a feature of strategy because of:

Emergent strategy as managed continuity – each strategic

move is informed by the rationale of the previous move.

Path-dependent strategy development – strategic

decisions can be a result of historical pre-conditions.

Organisation culture and strategy development – strategy

is the outcome of the taken-for-granted assumptions, routines and behaviours in organisations.

Strategy and organisational systems • Strategy development as the outcome of managers making sense of and dealing with strategic issues by applying established ways of doing things. • Strategy development is influenced by the systems and routines with which managers are familiar in their particular context. • Two useful explanations of how this occurs:

The resource allocation process (RAP).

The attention-based view (ABV).

Challenges for managing strategy development • Multiple strategy development processes – most organisations will develop strategy involving several approaches. • There is no one right way to develop strategy but the context can be important. • Organisational ambidexterity – exploiting existing capabilities while exploring new capabilities. Perceptions of strategy development – strategy will be seen differently by different people:

Senior executives see strategy in terms of intended, rational,

analytic planned processes, whereas middle managers see strategy as the result of cultural and political processes.

Managers in public-sector organisations see strategy as

externally imposed because their organisations are answerable to government bodies.

People who work in family businesses see more evidence of

the influence of powerful individuals, who may be the owners of the businesses. Strategy development processes will differ according to context:

Organisational characteristics differ – in size, technology and

diversity.

The nature of the environment differs – it may be stable or

dynamic; simple or complex.

Life cycle effects – development processes will evolve and

change over the life cycle. Managing intended and emergent strategy There are four important implications:

Awareness – is the intended strategy actually being

realised?

The role of strategic planning – needs to be clear (and it

may be more about co-ordinating emergent strategies).

Managing emergent strategy – even established routines

and cultural norms can be managed.

The challenge of strategic drift – recognizing that strategy

can come adrift and making the required changes in culture and the paradigm. It is important to distinguish between intended strategy – the desired strategic direction deliberately planned by managers – and emergent strategy which may develop in a less deliberate

way from the behaviours and activities inherent within an organisation. Course 11 Key elements in managing strategic change Diagnosis Leading and managing change Levers for change Managing change Managing change – key issues Four key premises:

Strategy matters – in identifying the need for change and

the direction of change.

Context matters – the right approach to change depends on

the circumstances.

Inertia and resistance – getting people to change from

existing ways of doing things is essential.

Leadership matters – good leadership of change at all

levels is needed. Diagnosing the change context Types of change Context of change Forcefield analysis Types of strategic change Four types of strategic change:

Adaptation – can be accommodated with the existing culture

and can occur incrementally.

Reconstruction – rapid change but without fundamentally

changing the culture.

Revolution – fundamental changes in both strategy and

culture.

Evolution – cultural change is required but this can be

accomplished over time. A forcefield analysis provides an initial view of change problems that need to be tackled by identifying forces for and against change. Various concepts and frameworks are useful here:

Mapping activity systems.

Stakeholder mapping.

The culture web.

The 7-S framework

Leadership is the process of influencing an organisation (or group within an organisation) in its efforts towards achieving an aim or goal. Three key roles in leading strategic change:

Envisioning future strategy.

Aligning the organisation to deliver that strategy.

Embodying change.\

Newcomers and outsiders ‘Outsiders’ can also play an important role in strategic change. These could include: • A new chief executive from outside the organisation can bring a new perspective.

• New management from outside can also increase the diversity of ideas. • Consultants are used to help formulate strategy or to plan the change process. Styles of strategic leadership Situational leadership – successful strategic leaders are able to adjust their style of leadership to the context they face. Two approaches: • Theory E: the pursuit of economic value; top-down; ‘hard’ levers of change; emphasis on changes of structures and systems, financial incentives, portfolio changes, downsizing. • Theory O: the development of organisational capability; emphasis on culture change, learning, participation in change programmes and experimentation. • A combination of the two approaches may be required and can be beneficial. Styles of managing change (1) Education and delegation – Small group briefings to discuss and explain things. The aim is to gain support for change by generating understanding and commitment. Advantages – Spreads support for change. Ensures a wide base of understanding. Disadvantages – Takes a long time. For radical change it may not be enough to convince people of the need for change. Easy to voice support, then do nothing. Collaboration – Widespread involvement of the employees on decisions about what and how to change. • Advantages – Spreads not only support but ownership of change by increasing levels of involvement.

• Disadvantages – Time-consuming. Little control over decisions made. May lead to change within existing paradigm. Participation – Involvement of employees in how to deliver the desired changes. May include limited collaboration over aspects of ‘how’ to change as well as ‘what’ to change. Advantages – Spreads ownership and support of change, but within a more controlled framework. Easier to shape decisions. Disadvantages – Can be perceived as manipulation. Direction – Change leaders make the majority of decisions about what to change and how. Use of authority to direct change. Advantages – Less time-consuming. Provides a clear change of direction and focus. Disadvantages – Potentially less support and commitment, and therefore proposed changes may be resisted Coercion – Use of power to impose change. Advantages – Allows for prompt action. Disadvantages – Unlikely to achieve buy-in without a crisis. Levers for change A compelling case for change Challenging the taken-for-granted Changing operational processes and routines Symbolic changes Power and political systems Change tactics

• Timing:

Building on an actual or perceived crisis.

Exploiting windows of opportunity.

Symbolic signalling of time frames.

• Visible short-term wins – the demonstration of such wins can galvanise commitment to the wider change strategy. A turnaround strategy is where the emphasis is on speed of change and rapid cost reduction and/or revenue generation. Elements of turnaround strategies:

Crisis stabilisation.

Management changes.

Gaining stakeholder support.

Clarifying the target market(s) and core

products.

Financial restructuring.

Managing revolutionary change Managing change in such circumstances is likely to involve: • Clear strategic direction. • Combining rational and symbolic levers. • Multiple styles of change management. • Working with aspects of the existing culture. • Monitoring change. Managing evolutionary change Managing change as evolution involves transformational change, but implemented incrementally. This requires:

An empowering organisation.

Clear strategic vision.

Continual change and commitment to

experimentation.

Identifying interim stages and targets.

Use of irreversible changes.

Sustained top management commitment.

Winning hearts and minds.

Why change programmes fail Research into why change programmes fail indicates seven main failings:

Death by planning.

Loss of focus.

Reinterpretation of change in terms of current culture.

Disconnectedness.

Behavioural (only) compliance.

Misreading scrutiny and resistance.

Broken agreements and violation of trust by

management. Types of strategic change differ in terms of: – extent of culture change required; – incremental change or urgency • Aspects of organisational context (as shown in the

Change Kaleidoscope) include:

the resources and skills that need to be preserved,

the degree of homogeneity or diversity in the organisation,

the capability, capacity and readiness for change,

the power to make change happen.

• Different approaches to managing change are likely according for different types of change and context. blockages to change and potential levers for change. • Situational leadership suggests that strategic leaders need to adopt different styles of managing strategic change according to different contexts and in relation to the involvement and interest of different groups. • Levers for managing strategic change need to be considered in terms of the type of change and context of change. Such levers include building a compelling case for change, challenging the taken-for-granted, the need to change operational processes, routines and symbols, the importance of political processes, and other change tactics.